Summary

The future price of chilli crop is likely to increase because of higher sowing and
lower stocks for the following season. Chilli stocks had decreased about twenty to
twenty- five per cent year on year .By the end of July ,the estimate market price of
chilli is expect to increase fifteen to twenty per cent ,which is exceed R100 per kg
from the current price of R 85 -98.During January to March he chilli price are usually
falls because of heavy arrival and then upswing during April to May because of
slowdown in arrivals and domestic demand .The production of chilli had decrease
thirty per cent due to erratic rains .In India , the major source of income for the
economy is chilli exports .Moreover, it is dependent on the production of spices in
China .Higher exports of chilli will cause the domestic market price of chilli to rise as
lesser chilli available of the commodity .Chilli exports at 347,000 tonne (vale of
R3,517.10 crore) during last fiscal year .Compared to the previous fiscal year , the
exports of chilli rise by 29.20% in value and 11.04% in volume .The major importers
of Indian chilli are Bangladesh ,China and Malaysia .

Market equilibrium; demand and/or supply

Supply and demand determined the quantity and the price of a product in the
market. In the concept of economic, demand curve is the graph show the relationship
between the price of a item and the amount of it that consumers are willing and able
to purchase at that given price (Hubbard & O'Brien, 2008). While supply curve is the
graph that show the relationship between the product price and the amount of
producer willing and able to produce (Hubbard & O'Brien, 2008). The point where
supply curve and demand curve intersect is market equilibrium.

Market equilibrium is a market that the supply in the market is equal to the
demand of the market. At this point, there wont be any shortage or surplus occur in
the market. There will be a change of market equilibrium when either the demand
curve or supply curve shift or both. There are few variable that can shift the market
demand including income, prices of related goods, tastes, population and
demographics, and expected future price. Unlike demand, supply are normally shift
due to the prices of input to produce a goods, technological change, prices of
substitute in production, number of firms in market and expected future price.

According to the article, the supply of the chilli will be decrease for the next
season due to the low production in India ( the leading producer of chilli ). The erratic
rain that happened last year and the high export demand from the world is the main
reason that why the output is low in this season (Krishnakumar & Bhosale, 2015).
Because of the low productivity of chilli, the supply curve of chilli shifted to the left
from S0 to S1, new equilibrium is formed as E1. As s result of new equilibrium the

price of chilli will increase, that will affected the consumers purchasing habbit.
According to the law of demand, when the price of a good increase, the quantity
demanded will decrease, the quantity demanded will upward moving along the
demand curve to the new equilibrium. In this case, the price of chilli has increase
from P0 to P1 due to the shifted of supply curve, cause a movement of quantity
demanded along the demand curve from Q0 to Q1.

Price
S1
S0
E1
P1
P0

E0

D0

Quantity
0

Q1

Q0

Market equilibrium graph related to explanation above

Producer surplus, consumer surplus, deadweight loss

Consumer surplus is defined as the difference between the highest price a

consumer is willing to pay for a good or service and the actual price the consumer
receives (Riley, 2014). It is an economic measurement of the benefits that a consumer
gain from consuming goods or services. The higher the level of consumer surplus, the
higher the willingness that a consumer willing to pay for goods or services. Consumer
surplus occur only when the price that a consumer is willing to pay for a good is
higher that the market price.

Producer surplus is defined as the difference between the lowest price a firm
willing to accept for a good or service and the price it actually receives (Hubbard &
O'Brien, 2008). Different from consumer surplus, producer surplus is the economic
measurement of the benefits that a firm gain from producing goods or services.
Producer surplus occur only when the price of the goods or services that a firm is
willing to produce is lower than the market price.

Deadweight loss is defined as the allocative inefficiency of the market that occur
when a good or service is not achieved it market equilibrium. Deadweight loss is
caused by few factors such as price floor and price ceiling, taxation, monopoly pricing
and others that will affect the efficiency of the market. Deadweight loss is also as
know as the reduction in economic surplus resulting from a market not being in
competitive equilibrium.

These three concept can briefly describe from the market equilibrium graph.
Consumer surplus is the area below the demand curve and above the equilibrium price
while producer surplus is the area above the supply curve and below the equilibrium
price. While deadweight loss is the triangle area that show the inefficiency of a
market.

Price

Consumer Surplus
Deadweight
Loss
S
Price ceiling

Quantity
Producer Surplus
Example Graph

From the article, we know that there arent any government intervention or
taxation apply on the chilli, so that deadweight loss is not occur. Hence, both the
consumer and producer surplus are maximized no matter before or after the shifted of
supply curve due to the low production of chilli. There will be a change of consumer
supply and producer supply after the shifted of supply curve.

Price
S1

P1
P0

S0

E1

A
B

F
E0

G
D

D0

Quantity
Q1

Q0

Graph that related to explanation below

Diagram above show the producer surplus and consumer surplus of chilli in different
market equilibrium. Before the shifted of supply curve, the market equilibrium of
chilli is E0, the consumer surplis is the area A, B, E, F, and area C, D, G
represent producer surplus. As the production of chilli is decreased due to the problem
of climate, the supply curve of chili shifted to the left form a new equilibrium E1.
And now the area A represent consumer surplus and the area B, C represent the
producer surplus. From the change of both consumer and producer surplus, we can
brightly figure out the marginal benefit of consumer is decrease but the producer
surplus is increase. In term of profit earning, producer earn more when the market
equilibrium is E1.

Market structure

There are few market structures that represent the markets in this world such as
Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly. We can
difference the markets by these three major characteristics which are the number of
firm, types of product and the ease of entry and exit (Heakal, 2003).

Perfect competition is a market that have unlimited number of firms. There are no
barriers to entry this type of market and the products produce by the firms in this type
of market structure is totally identical. For example, farming industry is the most
suitable example for this type of market structure. Corn farmers from every parts of
the world plant the identical corn, and sell it to the market.

In monopolistic competition, the characteristics is almost same as perfect

competition as there are a huge number of firms in this world and the ease for new
firm to entry this industry is totally as high as perfect competition, but the product that
produce by this industry is differentiated. Which mean the firms in this, market
structure produce their own product that are different from others firm and charge the
different price to the consumers. Clothing store, restaurant, coffee shop are the
example for monopolistic competition.

While oligopoly is a market that there are only few firms that make up this
industry. This select group of firm can control the price of their product like
monopoly, the ease to entry oligopoly industry is low. The products that produce by
oligopoly firms are nearly identical such as the firms that manufacturing automobiles

and computers. There are a lot of different bands that produce the similar computer or
automobile among the other bands but the technology that use in the computer and
automobile is different.

There are two extreme form of market structure, perfect competition and it
opposite monopoly. Monopoly is the market that only one firm control the entire
market, the producer can highly take control on their price. The entry to this industry
is restricted due to high costs or other impediments. This type of firm produce their
own unique products.

From the article, we know that perfect competition is the most suitable market
structure to describe chilli market. There are a lot of chilli plantations that owned by
different firm, that product the same variety of chilli in this world. The barriers for
new firm to entry this firm is extremely low. The price of chilli is determined by the
interaction of demand and supply of the market. There are no action that a chilli
producer can do to chabge the market price as a firm in perfect competitive market is
extremely small relative to the market and because it is selling exactly identical
product as other firms do. If one of the chilli firm tried to increase the price of his
product, it wont sold anything at all, because consumers will be buying the product
from other firm that offering the market price. So, those firms in perfect competition
will be a price taker and will have to charge the same price as every other firm do. To
maximized the profit of this market structure on short run, chilli producers, must meet
the situation where Marginal Revenue = Marginal Cost, while in long run the firm
cannot earn a super profit but nornal profit where Average Total Cost = Marginal Cost
= Marginal Revenue.